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Modelling consumer choice of distribution channels:
an illustration from financial services
Nancy Jo Black
University of Nottingham, Nottingham, UK
Andy Lockett
University of Nottingham, Nottingham, UK
Christine Ennew
University of Nottingham, Nottingham, UK
Heidi Winklhofer
University of Nottingham, Nottingham, UK
Sally McKechnie
University of Nottingham, Nottingham, UK
Introduction
The past de cade has seen s ome of the most
rapid and substantive changes in channels of
distribution for goods and services in
developed economies. The app earance of
sophisticated telephony, logistics and most
fundamentally, the Internet has challenged
(some may even say, undermined) the
traditional role of the intermedia ry and
presented buyers with a real choice in terms
of channel used. Consumers now face not
only a cho ice between indirect and direct
channels, but also a choice between different
types of direct channel. This issue of channel
choice has received relatively little attention
in the literature on distribution channels;
instead, researchers in this area have tended
to concentrate on understanding and
analysing channel management and channel
design. The consumer behaviour literature
has addressed the issue of channel choice but
often as a more peripheral topic, usually
with attentio n focused on the choice of retail
outlet, which is then analysed using
conventional models of consumer behaviour.
As multi-channelling was, until recently,
relatively limited, the absence of any
detailed framework for understanding
channel choice is perhaps unsurprising.
However, if current trends are in any way
indicative, the reliance on a single channel is
likely to be the exception rather than the
rule. While conv entional forms of retailing
will contin ue for the foreseeable future, the
consolidation of chann els such as telephone
sales and mail catalogues combined with the
development of digital television and the
Internet would suggest that for many
consumers, they may cease to be the outlet of
first choice.
In the presence of such trends, there is a
growing need to understand the ways in
which consumers may choose between
channels and the circumstances under which
one channel may be chosen ahead of another.
Existing models of c onsumer behaviour may
be helpful, but given their focus on the
purchase of a product, it is not clear that they
will fully accommodate the influence on the
choice of a channel. Arguably then, further
conceptual work is desirable to enhance
understanding of the factors that directly
affect choice of channel.
The current study does not attempt to
develop a general model of channel choice.
Rather the focus of attention is on the
development of a model that is relevant in the
context of financial services. Such a model
may provide a basis for further research in
other sectors but no claims for
generalizability are made. Several factors
underlie the decision to focus on financial
services. First, multi-channeling has a long
history in the financial services sector,
suggesting a reasonable degree of consumer
familiarity, which is felt to be advantageous
in attempting to understand attitudes and
motivations. Second, because of the
widespread use of multiple channels, there is
a well-established literatur e in financial
services relating to the adoption of new
channels and this may provide useful
The research register for this journal is available at
http://www.emeraldinsight.com/researchregisters
The current issue and full text archive of this journal is available at
http://www.emeraldinsight.com/0265-2323.htm
[ 161 ]
International Journal of Bank
Marketing
20/4 [2002] 161±173
#MCB UP Limited
[ISSN 0265-2323]
[DOI 10.1108/0265232021043294 5]
Keywords
Distribution channel,
Consumer behaviour,
Financial services
Abstract
With channels of distributio n
changing rapidly and multi-
channeling becoming increasingly
widespread, studies of consumers
will need to focus not just on
understanding product choice, but
also on understandin g the reasons
for channel choice. A lthough the
choice of individual channels and
the adoption of new channels has
been researched, there is little to
suggest that we have a more
general understanding of why
consumers, although purchasin g
essentiall y similar products, use
some channels rather than others .
Using the example of financial
services, where multi-channelin g
has been the norm for some time,
this paper reports on an
exploratory study to identify those
factors which influenc e channel
choice. Based on the results of
focus group discussions , the paper
argues that channel choice in
financial service can usefully be
conceptualise d as being
determined by consumer, produc t
channel and organisational
characteristics , with
product-channel interactions and
consumer-channe l interactions
being particularly important.
insights for the process of model
development.
The paper proceeds by reviewing relevant
literature to provide a preliminary
understanding of consumer choice in
relation to channels of distribution.
Thereafter, we report the results of a series of
focus group interviews which sought to
explore issues of channel choice. Based on
these and the results of the literature review,
the penultimate section of the paper presents
a framework for channel choice. The final
section presents conclusions and suggests
some directions for future research.
Background
The dominant model for the distribution of
consumer goods has been a single channel
model with different types of good requiring
different types of channel; thus, for example,
Berman (1996) suggests that perishable goods
will require short channels while
non-perishable goods can utilise longer
channels; high value goods can be sold direct
while low value goods are typically sold
indirect. This interpretation of the channel
selection decision by the firm has its origins
in the managerialist perspective on channel
design which o riginates in the work of
Aspinwall (1962) and Bucklin (1966). With
market, product, organisational and
intermediary factors determining the choice
of channel, the likelihood of a deterministic
and unique relationship between product
type and channel format was high. Later
models of channel selection based on
transactions costs (Anderson, 1986; Rangan
et al., 1993) tended to imply a similar degree
of determinism in channel choice. Neither
approach ignored the consumer; issues such
as frequency and size of purchase and degree
of product complexity were taken into
consideration; however, neither approach
attempted explicitly to consider variations in
consumer attitudes or preferences. To a large
degree, the imp licit assumption is that choice
of channel is generally a logical corollary of
choice of produc t. Where consumer choice
has been investigated, it is typically in
relation to ch oice of outlet within a given
channel type and typically that has
referred to store choice (see for example
Engel et al., 1990).
The range of distribution channels
available in the consumer market has
increased dramatically in the past decade
and there has been a corresponding increase
in the competition between channels. A
variety of retai l formats now compete with
telephone, mail, Internet, TV and digital TV
as purchasing environments
(Balasubramanian, 1998) and consequently
understanding the factors that wi ll lead
consumers to purchase from one channel
rather than another becomes an increasingly
important in put to channel design and
management. A common assumption that is
made in many writings in the area of
distribution is that the choice of channel can
be seen in the same conceptual framework as
choice of product (see for example Bell and
Lyman, 1999). While this position might be a
useful starting point, and while consumer
choice models may provide useful insights,
they do not readily deal with product-
channel interactions in which the
characteristics of the product affect the
channels considered (Morrison and Roberts,
1998); nor do they examine consumer-
channel interactions in which the
motivation for behaviour affects channel
choice (Tauber, 1972). Accordingly, there is
case for further research to consider the
most appr opriate framework for evaluating
the determinants of consumer choice of
channel (Balasubramanian, 1998).
As was noted earlier, there is a
comparative shortage of research addressing
this issue in its broadest context. The
majority of research rela ting to new
distribution channels has focused on issues
to do with adoption of new channels as an
alternative to existing ones. Telephone and
Internet have tended to dominate this area of
research, although other forms o f direct
marketing have not been ignored. Thus, for
example, Jasper and Ouellette (1994)
examine the impact of dif ferent forms of
perceived risk and propensity to seek
information in the direct purchase of
clothing. Television shopping and its
attributes relative to other distribution
channels is the subject of res earch by
Eastlick and Liu (1997), while Geh rt and Yale
(1996) explore the importance of convenience
as a determinant of choice in the decision to
shop via catalogue. More recently, Liang and
Huang (1998) develop ed a transactions cost
based model to explore the extent to which
the Internet would be acceptable as a
distribution channel for a set of products
which included books, shoes, toothpaste,
microwaves and flowers.
However, the largest body of literature
relating to channel choice in any particular
sector is probably that relating to chan nel
choice in financial services. In p art, as
suggested earlier, this reflects the longer
[ 16 2 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
tradition of multi-channeling, and thus,
choice and mix of channels has a lengthy
history in the literature on marketing
financial services. Equally, however, we
should note the diversity of products that fall
under the banner of ``financial services’’ and
with such a diversity, it is perhaps
unsurprising that such a range of channels is
in use. Nevertheless, as competition has
increased and financial services
organisations have diversified (Ennew et al.,
1990), any giv en product may b e available
through a highly varied set of chan nels.
Furthermore, as Easingwood and Storey
(1997) note, there is evidence to suggest that
the adoption of multiple channels can have a
positive impact on a product’s performance.
Although choice of channel has been
central to the literature on financial services
marketing, the dominant tendency has been
to examine the factors influencing the
adoption of new channels. This pattern is
clearly illustrated in a review of the relevant
literature by Hewer and Howcroft (1999). This
review focuses particularly on studies of the
adoption of ``high technology’’ services
(ATMs, telephone banking) and notes the
importance of factors such as convenience
and ease of use to adopters (e.g. Moutinho
and Meidan, 1989; Rugimbana, 1995; Marr and
Prendergast, 1993; Lockett and Littler, 1997).
Conversely, among the non-adopters, the
preference for dealing with a real person
(Zeithaml and Gilly, 1987), concerns about
safety and risk and complexity (Leblanc,
1990), were all identified as reasons for
non-adoption. In concluding their review,
Hewer and Howcroft (1999) cite the particular
importance of trust in financial services
marketing and identify a need for further
consideration of the implications of a
particular channel format for the degree of
consumer trust that a financial services
organisation can engender.
While much of the initial channel adoption
literature in financial services marketing
focused attention on ATMs (e.g. Zeithaml and
Gilly, 1987; Rugimbana, 1995; Marr and
Prendergast, 1993), the 1990s saw a shift in
interest towards telephone banking (Lockett
and Littler, 1997) and electronic b anking in
general (Barczak et al., 1997; Liao et al., 1999).
More recently, studies focusing specifically
on Internet banking in particular (Daniel and
Storey, 1997; Morrison and Roberts, 1998) and
Internet financial services in general
(Costello and Tuchen, 1998) have become
more prominent, although often the initial
focus of attention concerns the activities of
organisations rather than the responses of
customers. Where research has fo cused
attention on consumers, the patterns that
emerge are similar to those of earlier work in
that convenience, flexibility and control tend
to encourage adoption of new channels and
concerns about security and complexity
discourage adoption. Interestingly, in a more
detailed study of motivations, Barczak et al.
(1997) suggest that this may be a rather
simplistic view and highlight instead the
importance of focusing attention on money
management philosophies as predictors of
the types of channel used. Furthermore,
Morrison and Roberts (1998) emphas ise the
significance of product channel interactions
and the need to cons ider the degree of
congruence between a product and channel
when evaluating the factors influencing the
decision to adopt/use a channel for a
purchase.
Bell and Lyman (1999) look more broa dly
at the issue of channel choice for insurance,
but their focus is on buying behaviour in
general rather than channel choice in
particular. Consequently, while their
findings are a useful starting point, they do
not address the issue of product/channel
interactions which, previous research has
suggested, may be of particular significance.
It may also be desi rable to address
consumer/channel interactions to
accommodate both the variations across
market segments and the variations in
consumer behaviour at given po ints in time.
In financial services, and increasingly in
other sectors, multiple channels are the
norm and the differences in channel
characteristics are in effect an opportunity
to offer different p rice-quality configurations
to different market segments (Berger et al.,
1997). However, as noted earlier, if
motivation is important in ch annel choice
then it may also be desirable to
accommodate variety in channel choice
according to customer motivation.
The research reviewed above has provided
important insights into the factors
influencing consumers’ decision to use a
particular channel. However, the majority of
studies have focused attention on the
decision to adopt a new channel and this
pattern is strongly evident in the research
relating to financial services. Furthermore,
as a consequence of the focus on adop tion, the
conceptual frameworks have tended to focus
on characteristics of adopters or
characteristics of the innovation (or some
mix of the two). Research that has focused on
managerial selection of distribution channels
has tended to emphas ise the impact of a
[ 163 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
range of factors, many of which interact
(most notably market, product,
organisational and intermediary factors).
Implicit in such models is the belief that such
factors will affect the willingness and ability
of consumers to purchase through particular
channels. However, the existing literature on
consumer choice has yet to explain how such
a variety of factors may affect the consumer’s
decision-making process. Accordingly, the
current paper aims to address the extent to
which a broader range of factors may
influence the selection and use of a particular
distribution channel. The approach is
essentially explanatory, although the
potential significance of market, produc t,
organisational and intermediary factors is
noted. Furthermore, the focus of attention
will be the personal financial services sector
and the intention is to identify a framework
to understand consumers’ channel choices
within that sec tor. While it would be hoped
that such a framework may generalize to
other retailing contexts, no such claim can be
made at this stage.
Methodology and data collection
The ob jective of the current study is to
attempt to understand more generally the
influences on choice of channel in financial
services as a basis on which a more general
conceptualisation of channel choice can
evolve. Therefore, given the exploratory
natu re of the research it was felt that a
qualitative app roach, using focus group
interviews, was appropriate. Focus group
interviews are flexible in nature and allow
for the exploration of consumer reactions to
new product concepts (see Greenbaum,
1993). Focus groups produce the qualitative
data n ecessary in an exploratory study,
where scientific explanations are
ultimately desira ble and when the
researcher is uncertain of the nature of the
constructs to be employed. Thus,
exploratory groups:
Represent an explicit attempt to use everyday
thought to generate or operationa lise second-
degree constructs and scienti fic hypotheses
(Calder, 1977, p. 356).
In addition, the semi-structured interview
format will facilitate the investigation into
the interrelationships between many of the
concepts under study.
Six exploratory focus groups, each
comprising between ten and 12 participants,
were carried out in the UK. The number of
groups needed to reach theoretical saturation
(Strauss and Corbin, 1990) is considered to be
between three and six groups (Krueger, 1994).
When selecting participants the overriding
concern is to minimise bias rather than
produce generalisable results (Morgan, 1997).
Thus, theoretically motivated purposive
sampling methods were employed in
selecting participants for this study. Group
participants were recruited on the basis of
pre-specified criteria (Calder, 1977).
First, all partic ipants had to be involved in
the purchasing of financial services in their
own househ old. Second, the groups were
further broken down in order to create a
stratified sample according to their degree of
involvement with the Internet. Given the
growing importance of the Internet as a
channel it was considered desirable to be
able to include some consumers who actually
did use this channel, some who potentially
had access to it but did not use, and some
who could not easily access this channel at
the time. This produced a research design
with a significant degree of variation in
actual and potential channel use and thus
provided the opportunity to explore both
differences and similarities in attitudes
and behaviour. The three segments
identified were:
1Segment 1. Non-Internet users (20).
2Segment 2. Internet users that have not
purchased financial services over the
Internet (24).
3Segment 3. Internet users that have
purchased financial services over the
Internet (23).
The individual focus groups were restricte d
to particular segments in order to create a
more positive group dynamic and
consequently facilitate a more meaningful
dialogue between group members
(difficulties were envisaged if the groups had
been heterogeneous and thus had quite
different experiences and knowledge).
Each segment co mprised two focus groups
with segments 1 and 2 familiar with most
channels but requiring a demonstration of
Web pages from financial service providers
in order to familiarize them with the Internet
as a delivery channel. In order to gain more
background information on the participants
they were asked to complete a questionnaire
before the start of each session. The intention
was to use this information to assess the
extent to which there were significant
differences in personal characteristic across
the groups that might impact on channel
choice. The questionnaire consisted of issues
related to:
[ 16 4 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
participants’ personal background;
demographic factors;
financial product involvement;
technological product involvement;
Internet use; and
two innate innovativeness scales
measuring consumer independent
judgement making (CIJM ) and consumer
novelty seeking (CNS) (Bruner and
Hensel, 1996).
The majority of the analysis consisted of an
analysis of group means (using t-tests), the
results of which are presented in Table I.
The results indicate that the income
increased signif icantly for segments 1 to 2
and 2 to 3, while at the same time the working
hours between the three segments did not
differ. In terms of product category
involvement, 1 and 2 own fewer
telecommunications products than segment
3. No significant differences were found
across the groups in terms innate
innovativeness.
Transcript based analysis was used
comprising coding and cut-and-paste
techniques using a word processor (Bertrand
et al., 1992). Initially, consumer, product,
organization and channel characteristics
provided broad themes for organising the
data; other codes emerged during the process
of analysis. As a second stage, the three
groups, as described above, were contrasted
in order to id entify possible differences. The
following section is structured on the codes
developed and differences among the groups
are highlighted.
Data analysis and interpretation
The analysis of the focus group interviews is
presented below structured according to both
anticipated and emergent themes.
Specifically, consumer, product and channel
characteristics appeared as expected
although the emotional dimension of
consumer responses was more in evidence
than anticipated. Organisational factors were
also significant, which, given the importance
of image and reputation in services
marketing, is not surprising. Finally, there
was evidence of certain ethic al dimensions in
attitudes towards channels, although the
extent to which these affected channel
selection was less clear cut.
The focus groups addres sed a range of
personal financial services, but current
account banking dominated discussions for
obvious reasons. One consequence of this i s
that con sumers discuss both the initial
choice of channel as well as the subsequent
use of that channel. Consequently, that
analysis considers both initial distribution
and continuing delivery. The inclusion of
both these aspects was not tho ught to be
problematic because with frequent contact
services such as current a ccounts, in a
multi-channeling environment, the
continued use of a channel can be seen as
equivalent to a regular selection decision.
With those services where contact is less
frequent (e.g. insurance, savings and
investment) the distinction between initial
distribution and continuing delivery is less
of an issue.
The following paragraphs outline the key
findings from the qualitative analysis,
grouped according to theme.
Consumer characteristics
Across the three segments, a wide variety of
channels were used, as expected from the
research design. Factors that appeared to
influence choice included consumer
confidence, lifestyle factors, motivations and
emotional responses. These are outlined
below.
Consumer confidence
Consumer confidence in their ability to use a
particular channel is clearly of considerable
importance and while all were comfortable
with conventional (people-based) methods of
Table I
Questionnaire results of interviewees’ personal characteristics (means based on an ordinal scale)
S eg m e nt 1 S eg m e nt 2 S eg m e nt 3
F ac t or S u b- fa c to r
G ro u p
m e an (S D )
Gr o u p
m e a n (SD )
G ro u p
m e an ( SD ) S ig .
Socio-economic In c o m e 2 .5 21 7 (1 .4 7 3 1) 3 .90 4 8 (1 .7 5 8 0) 4. 09 5 2 (2 .5 8 66 ) 0. 02 0 *
W o rk ho u rs 2 .9 13 0 (1 .4 4 3 3) 3 .59 0 9 (1 .2 9 6 8) 3. 33 3 3 (1 .4 6 06 ) 0. 26 8
P ro d u ct ca te g o r y i n vo lv e m e n t O w ne r sh ip o f f in an c ia l p ro du c ts 3 .9 56 5 (1 .4 9 1 7) 4 .18 1 8 (1 .5 0 0 4) 5. 00 0 0 (1 .1 8 32 ) 0. 04 3 *
T el ec o m m un i ca t io ns pr o du c t o wn e rs h ip 1 .9 5 0 0 (0 .9 9 8 7) 3 . 00 0 0 ( 1. 3 4 84 ) 3 .0 4 7 6 (1 .4 6 5 5 ) 0. 01 2 *
T o ta l C IJ M 3 .7 80 3 (1 .2 5 5 0) 3 . 22 4 6 ( 1. 0 5 36 ) 3 .2 4 6 0 (1 .0 7 4 5 ) 0. 19 0
T o ta l C N S 4 .2 14 3 (1 .0 5 1 9) 4 . 45 4 5 ( 1. 1 2 44 ) 4 .2 9 1 0 (1 .0 6 4 9 ) 0. 67 9
N ot e : * S ig ni fi ca n t a t t h e 5 p e r c e n t le v e l
[ 165 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
distribution, more technology-based
channels presented concerns. ATMs were
sufficiently well developed not to cause any
significant worries and to some degree, the
same was true of telephone banking
(although the numbers using this service
were rather smaller). Interestingly though,
while ATMs were widely accepted for cash
withdrawal there was rather more resistance
to their use for other services such as
depositing money. The Internet presented
rather dif ferent problems and the importance
of confidence is particularly evident in this
context. Thus, for example, following a
demonstration, respondents in segment 1
commented:
Yeah, that last one really frightened me
because there’s a lot of money there ... if you
click on that one [the wrong one] what do you
do? (S1).
... I’m not comfortable ... (S1).
Segments 2 and 3, however, expressed a high
degree of comfort with the use of the Internet:
It seems very straight forward ... doesn’t
seem at all d ifficult ... (S2).
If you are happy or familiar with using a desk
top computer then the banking service or
whatever doesn’t hold much fear for you (S3).
Interestingly, higher degrees of confidence
were associated with an appreciation of
higher degrees of control:
But once they’re in they can do anything the
bank teller can do ... it’s just superb (S3).
... you’ve got complete control of your
account (S3).
Generally, respondents recognised that there
were significant costs associated with using
the Internet compared with other channels ±
both financial and time, pointing almost to
the idea that asset specificity was higher for
the Internet than for other channels:
And it’s quite a lot of learning from that point.
I didn’t enjoy particularly learning it. It was
hard ... (S3).
You need to have time to spend on it [the
Internet] to find out what you are doing. And
quite frankly, we haven’t got the time ... (S2).
It’s a lot of money to sort of buy a computer, a
printer, a scanner, whatever (S1).
Confident Internet banking users viewed the
channel as a means of saving time as w ell as
gaining control over personal finan cial
management.
Socio-economic, age and lifestyle
characteristics
The ability to afford access to certain
channels was clearly an issue, as was age:
But I’m hardly in a position where I can shop
on the Internet because I haven’t got credit
anyway (S1).
I think the next generation is going to do
everything on computers (S1).
I think there’s a big difference in the
generation gap ± I mean our generation is
terrible (S1).
Arguably, however, a more significant
influence on channel choice was lifestyle
related. The pace of modern life has never
been so fast and many consumers are
increasingly feeling time p ressure. One of the
main attractions of operating in an electronic
market-space as opposed to a physical
marketplace is that it saves time and
increases con venience. It appears as though
home shopping is increasingly adopted by
the ``time poor ± cash rich’’:
To go on the Internet, find a grocery that has a
sign and actually order what I want and have
delivered to the door and pay for it . . . that
would save mass amounts of time (S 3).
I think it [home shopping] would work in
some cases ... for people with busy lifestyles
. . . I think it could be a real help ing hand. I
think for certain things, not everything (S3).
Phone banking is good because it’s quick.
If I’m on the bus and I want to check my
balance, then it’s the easiest way to get it (S2).
None of the members of segmen t 3 were
dissatisfied with on-line shopping and even
those not familiar with this type of channel
acknowledged the benefits:
[Using the Internet for your financial
transactions] could save you so much time.
Your leisure time right now is so short,
because most people work so many hours now
just to keep a reasonable standard of living.
So yeah, it could save time and that would be
good (S1).
Motivation
Barczak et al. (1997) identified the importance
of motivation as a factor leading to the choice
of one chan nel over another. Certainly, in the
focus groups there was evidence to suggest
that use of the branch network might be
socially motivated and more generally that
channels may be chosen (on some occasions)
because consumers were motivated to seek
some form of social interaction:
You’re not even enjoying yourself are you? I
mean you’re not with other people . . . (S1) .
I like to walk to the bank. You get to chat on
the way, don’t you ... (S1).
Whereas, as noted above, where time-saving
or control were stronger motivations, the
choice of channel was likely to be different
[ 16 6 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
Affective responses
Channel choice, particularly in the context of
the Internet versus other channels, provoked
a number of much more emotional resp onses
and in some cases, an ostensibly non-rational
reaction:
I don’t know, I just tend to think at the bank it
would be best (S1).
It’s cheating in a way ... we did i t the hard
way (S1).
I’m worried that this country ... become such
a lazy society (S3).
I do feel that people feel left b ehind (S3).
Across the segmen ts, there was a perception
that somehow, a channel such as the
Internet had negative effects at a social
level, even though the indi vidual still
recognised its value to them. Furtherm ore,
the resistance among many responden ts to
using the Internet in particular came from a
belief that it was somehow less secure, even
though those same individuals would
acknowledge that there w ere equivalent
risks a ssociated with the use of telephones
or ATMs.
Ethical attitudes
A final theme to emerge which had not
initially been anticipated but was apparent
across all three segments related to ethical
attitudes and a sense of social responsibility.
These influences appeared to be common
across segments and while it is not obvious
that they impacted directly on ch annel
choice for the individual, they did appear to
have a significant impact on perceived
acceptability of overall channel strategies.
Although in many respects this appears to be
very specific to the case of banking, given
that it relates to the impact of branch
closures, it should be noted that there are
parallels between the banking experience
and the prominence of supermarkets and the
development of out of town shopping centres,
which may imply that this issue of
acceptability may be more generally
relevant:
They’re just cutting down on staff (S1).
The big advantage is for the banks because
they’re getting all their customers to do their
work for them (S3).
But then there will be less branches, less
employees ... more profits ... but there’s less
jobs (S3).
Accompanying this perception that somehow
the development of new channels is unfair is
a perception of inevitability:
I think it [financial transactions on the
Internet] is going to b ecome the thing to do
soon (S1).
It’s only a matter of time, isn’t it, before it
becomes the way of life, like credit cards (S1).
Product
The type of financial product appears to be a
key influencing factor for channel selection.
The product can be described along two key,
but related, dimensions that affect level of
buyer involv ement, namely: complexity and
the perceived risk associated with its
purchase.
Complexity
Respondents across all segments agreed that
the degree of product complexity determine s
channel choice. Strong reservations remain,
even amongst the most advanced Internet
users:
I think some products ... I think if you’re
talking about banking things, often they are
so complex, that you need gui dance for some
of those products. But that should be your
option. You may downlo ad information, but
you may still not understand exactly what it’s
saying. I think ... it depends on the
individual. It depends on how c onfident you
are in the products you’re looking at (S3).
I think when it comes to things like pensions
and investments, I probably still feel more
secure trusting a financial advisor. Because
some of these products are so complicated in
how they work (S3).
You don’t have a b asic understanding of what
you’re trying to ... how these products work. I
bet you most people don’t and I think you’re
taking a great risk by b uying. I mean you’ve
got to be able to trust somebody like your
bank manager (S3).
For example, in the context of purchasing a
mortgage it was highlighted that:
There’s got to be more intricate details that’s
required for pensions and things like that and
you need to speak to someone face-to-face (S1).
See, it’s hard at cash machines . . . Yeah, just
hold on while I purchase this mortgage (S1).
I think I would still go to a personal ...face-to-
face on a mortgage, but certainly I would use
that [Internet] to get insurance (S2).
I got a mortgage this year and I don’t think
that I’d do it over the Internet, just because it
was the first time I bought a house and you
know, I’ve got a ran ge of questions (S3).
Arguably one of the strongest themes to
emerge across all three groups was the
interaction between product and channel,
with simpler, low involvement products such
as general insuran ce and basic banking being
[ 167 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
well suited to technology-based, arms length
channels while the more complex, higher
involvement products were more suited to
face-to-face channels. To a large degree this is
consistent with findings reported by
Morrison and Roberts (1998) on product
channel interactions.
A further dimension of complexity came
with respect to the way in which channels
were used and the potential for
complementarity between channels. The
complex nature of financial services often
renders the task of information search easier
than information evaluation. Consequently,
professional assistance may still be required
to interpret the quality of information
gathered:
I think the Internet would be useful when
looking to invest in an ISA. I’d have a look ...
to see what is on there. Then I’d want to see a
financial advisor to help me understand the
figures on the Internet, o r even to see if the
financial advisor is being honest or not. That
would be good (S2).
Thus it would appear that rather than
representing alternatives, chann els such as
the Internet and face-to-face channels may
need to co-exist.
Price and perceived risk
Closely related to produ ct complexity is the
risk associated with a product and
reinforcing the risk is the product price.
Again, comparisons were made between
extremes, such as the straightforward case of
taking out insurance versus a mortgage or
pension:
I would probably get house insurance over
the Internet, but I wouldn’t want to run the
risk of a 16-year thing [mortgage] or a pension
(S1).
[Interviewer question: Do you think that
there are certain products that you would
never buy on the Internet?]
... I think anything expensive, I think that
even if you are confi dent in what you are
doing. I mean there’s got to be a limit (S1).
In essence, if the product concerned is
characterised by a high level of perceived
risk and then is also expensive, there will
tend to be a preference for a face to face
channel.
Channel
Given the importance, in distribution, of
matching product and channel, then clearly,
as well as considering attributes of products,
it would appear that attributes of the
channels themselves will also be influential.
Channel accessibility
Whether or not a consumer has access to a
channel (e.g. is the bank branch reachable,
does the consumer have a PC or Internet
access?) is probably the most basic
determinant of the set of channels
considered. More specifically, the
accessibility of a channel (i.e. the ease with
which it can be accessed) will then influence
choice from the set of chann els being
considered. The ability to access technology-
based channels outside of conventional
business hours was a particular strength for
these channels and a weakness for more
conventional channels:
All their sort of sub banks have shut down
and the only one is in town. I mean , you can’t
get into town on a daily basis ... you’ve got to
park. Its very inconv enient (S1).
You can just do it at home which is a lot
quicker than having to go out to the bank (S3).
Although, of course, there were perceived to
be limits to the usefulness of electronic
channels:
And you need to go to the bank because the
computer can’t give you any money at the end
of the day, can it? (S2).
I would spend more time filling out forms on
there [the Internet] than it does for me to pop
something in the post. And it would take
longer because I wo uld be extra careful,
checking to make sure I haven’t ma de a
mistake, reading through it, you know (S1).
Convenience appears to be a key advantage of
Internet banking over other channels of
distribution. Even among those pa rticipants
who were least exposed to the Internet,
banking through this channel was described
as being as convenient as telephone banking
and in some cases, more so:
You can’t see the figures in front of you ... the
Internet is visual (S1).
Furthermore, the user is not under any time
pressure to make decisions, would not have
to queue and is not restricted by opening
hours, as highlighted in the following quotes:
You’ve got nobody pushing you [and] you’ve
got all the time to look at it. Whereas if you
went to the bank, they don ’t give you time to
think about it (S1).
Getting to the bank early or on a Sa turday; I
can never seem to get to the bank for saving, I
always spend a lot. If you could just do it any
time of the day, put the money away, I could
save a bit more (S1).
Channel costs
The costs associated with various channels
depend partly on the user. In terms of
Internet banking, the experience of the user
[ 16 8 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
determines the connection time. In
comparison to phone banking, Internet
banking was partly regarded as possibly
more time consuming.
It may take longer, becau se you don’t know
what you’re looking for or what you want
(S2).
I don’t have a problem using the Internet but
it’s wherever the good deal is. If I have to go to
the bank to get a good deal, I’d go to the bank
(S3).
Telephone is probably cheaper because if you
have a question, then they can ring you back
(S2).
Moreover, it was raised that longer
connection time ± and thus higher costs ±
may occur due to long transactions.
However, in these instances, the final cost of
using a channel will vary across individuals,
with more skilled users incurring lower costs
and less skilled users incurring higher costs.
Channel risk
Perceived risk associated with the channel
(as opposed to perceived risk associated with
the product) appears to be a n issue
influencing choice:
I hate drawing money out of a cas h-point, I’m
always conscious that someone’s going to nab
my money ... That’s why I only get ca sh-back
from a supermarket (S3).
Lack of familiarity and experience lead to
higher perceptions of risk with the Internet
when compared with other channels. Two
sources of risk need to be distinguished, first,
the risk of making a mistake during data
entry, and second, the level of secure data
transfer. With regard to the first source of
risk, inexperienced/non-users are afraid of
making mistakes during data entry, while
more experienced users believe that a bank
clerk is more likely to make a mistake than
they themselves:
I think that you yourself are more likely to
make an error, because the people at the bank
do it day in and day out (S1).
I think if you’re in control, you tend to be
more precise ... they [bank staff] are in a
working environment, rushing around ... but
if you are dealing with your financial services
you get it right (S3).
In terms of secure data transfer, participants
stressed that the long procedures often
needed to set up an Internet account are
reassuring:
I wouldn’t want them [the bank] to just like,
willy-nilly it through ... It is added security
and I think that’s what you need because you
know, what you hear all the time (S 3).
The risk associated with revealing
confidential financial information such as
credit card numbers over the Internet versus
the telephone was highly debated:
I wouldn’t put any personal information
through the Internet ... I don’t thi nk it is
secure enough (S1).
In addition, it appears that most respondents
across all segments are happy to pass on this
type of information over the telephone but
have reservations or even rejected to do so
using the Internet:
But you pass your credit card details to
somebody over the phone and you trust them
(S3).
When prompted for reasons it appears that
they are of mainly of a psychological nature
as with both cases the transfer occurs over
telephone lines:
I think it’s psychological because when you
are actually talking to someone ... I don’t
know; it’s just psychological (S2).
As the above discussion on products and
channels already h ighlights, there is a strong
product-channel interaction, in other words,
the simpler the product, in terms of
complexity, or associated risk, the more
channels are considered as a viable option,
while the opposite is true for more complex
or riskier products. In particular, personal
contact is still highly appreciated for
clarification purposes and for putting the
blame on someone, in case of later
complications:
Some things I would take off the Internet. I
certainly would look at the range of products,
but would be more inclined to go for personal
contact for pensions, mortgages and things
like that (S1).
I prefer to speak to someone di rectly about
insurance policies and stuff like that. So if
there’s anything that comes up in the
conversation, you can sort it out there and
then, and you can’t on that [Internet] can
you? (S1).
Of course, it may be that there are also
circumstances in which the absence of
personal contact might be desirable,
particularly with potentially embarrassing
situations such as the rejection of a loan
facility or overdraft request:
It [using Internet banki ng] would help if ...
you have to sort out your overdraft ... it could
be embarrassing if ... you are not sure
whether you could do it or not ... . You don’t
really want to be turned down for a loan. [If
the loan is refused using Internet banking] at
least it’s done privately (S1).
[ 169 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
Organisation factors
The organisation may influence a
consumer’s behaviour regarding their choice
of product and channel. The key issues that
were highlighted in the focus groups relate to
two broad themes:
1 The reputation of the organisation, which
is considered to be a multi-dimensional
construct including factors such as brand
image, size and longevity.
2 The range of channels that the
organization makes available to its
customers, for example, branch, telephone
and Internet.
As highlighted above, the reputation of an
organisation is considered to be a multi-
dimensional construct. It appears as though
the reputation of the organisation may be
important in terms of determining its ability
to reduce the perceived risk customers may
perceive about the distribution of financial
services through channels such as the
Internet:
I think that if it’s a bigger, a bank l ike Lloyds
... I trust them to be secure, but it’s the
smaller size [companies] where I wouldn’t use
the Internet (S1).
This was a finding that was supported by
interviewees from segments 2 and 3.
Although the size of the organization was not
highlighted, the presence of an established
brand was considered to be very important:
You’ve got to have a good company brand
name ...You’ve got to be careful to whom you
give your information to. I mean you
wouldn’t just give anybody your credit card,
would you? (S2).
Although segment 3 interviewees w ere more
knowledgeable about Internet financial
services than the previous two segments they
still perceived the recognised brand names to
be less risky:
... I would only go with a recognised name,
not Joe Blows Loans Inc or anything.
Someone like Lombard or Tesco you know a
recognized name at any typical Web address
like www.tesco.com (S3).
Well I trust the [established] names that I
[Internet] bank with. I mean, they wouldn’t
take any chances if there was going to be a
risk (S3).
The second theme to arise from the focus
group interviews was the range of channels
that an organization made available to its
customers. This factor was found to be most
significant for the interviewees in segment 1,
the users of more established channels. For
example, conducting financial transactions
over the Internet was perceived to be less
risky if the financial service provider has a
branch network:
. . . you can always come back to them because
you’ve still got the bank on the high street
(S1).
The issue of multi-channel availability and,
in particular, branch availability, is
considered to be interrelated with the issue
of organizational reputation. For example, in
the case of the big retail banks, it is their
high street presence and established
reputations that are both able to reduce the
risk a customer may perceive is associated
with conducting a financial transaction over
the Internet:
. . . if you know you were banking with Lloyds
TSB you know then you can blame them or
someone else. As long as you have someone
there it would n’t be so bad [using the
Internet] I think (S1).
Discussion and model
development
Based on the findings of the focus group
discussion, a preliminary model of ch annel
selection for financial services is proposed
and outlined in Figure 1. In this simp le model
the choice of channel is influenced by the
consumers themselves, the nature of the
product, the characteristics of the channel
and the reputation of the organisation.
From the exploratory analysis and the
resulting model the following broad
propositions are suggested as a guide for
future research. In many instances,
individual studies of adoption of particular
channels may have identified similar
relationships (see section 2 of this paper).
What is thought to be distinctive about the
model and propositions reported here is the
formal integration of the set of factors
influencing channel choice combined with
explicit recognition of the way in which those
variables interact:
P1. The product. Product complexity and
perceived product risk (in essence,
factors which wou ld move consumers
towards a high involvement decision
process) will tend to increase the
reliance on personal channels or
channels which permit a high degree
of personal interaction.
P2. The channel. The consumers’
perceptions of the accessibility of a
given channel will have a positive
impact on the likelihood of channel
selection while perceived channel
risk and channel cost will have
negative impacts.
[ 17 0 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
P3a. The consumer. High levels of
consumer confidence with a
particular chann el will tend to
increase the likelihood of ch annel
use.
P3b.The consumer. For any given
consumer, channel use may be
affected by purch ase or shopping
motives. Specifically, instrumental
shopping motives w ill tend to
increase the likelihood of us ing the
most convenient channel, while
social motives will tend to increase
the use of personal channels.
P3c. The consumer. Younger consumers
may be more receptive to novel forms
of distribution, and wealthier
consumers are likely to have a
broader choice of channels available.
Those consumers with busy lifestyles
will actively prefer more convenient,
easily accessible channels.
P4. The organization. The more novel the
distribution channel, the more
importance a consumer will attach to
organizational image and reputation
as risk relievers in channel selection.
The image of an organization and its
ability to offer multi-channel
distribution (e.g. telephone or face to
face) will reduce the risk perceiv ed by
customers of nov el distribution
channels.
The proposed model has identified four broad
factors which will affect channel choice and
there is some consistency between the factors
which appear to influence consumer choice
of channel and the factors that are thought to
influence managerial decision making in
relation to channel selection. It was apparent
from the focus group discussions that many
of these factors will interact and any
attempts to further research channel choice
will need to take such interactions into
account. Most significant are perhaps
product-channel interactions such that some
products are more suited to some channels,
whether because of complexity, perceived
risk or other transactions’ costs (Liang and
Huang, 1998). However, consumer channel
interactions may also be significant ± either
because of confidence or ability with respect
to the use of the channel or even because of
an affective response, whether in favour or
against a partic ular channel. The model
proposed above and the interactions
identified in the dis cussion in the previous
section provide an agenda for future research
into consumers’ channel selection in
financial services as well as offering a
provisional framework which may be
considered for use in other retail contexts.
Conclusions and future research
The present paper has been a first attempt at
developing a parsimonious model to
identify the factors influencing the
consumer choice of distribution channels
and to examine the nature of the
interrelationsh ips between the different
influences. The proposed model is not
intended to be comp rehensive but ra ther it
should be viewed as an early attempt at
structuring our current understanding of a
complex phenomenon in a particular
Figure 1
A model of product channel selection for financial services
[ 171 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
context ± na mely, financial servic es. In the
case of new channels of distribution, the
adoption decision is a highly complex
process and this complexity is intensified
when multiple channels and multiple
products co-exist. In effect, the problem
becomes one of having to understand a
consumer’s behaviour across a range of
interrelated adoption decisions.
It is anticipated that the current paper will
help stimulate future research into the area
of consumer cho ice of distribution channels.
In partic ular, the nature of the
interrelationships between customer,
product, channel and organizational
characteristic s, and their impact on
consumer behaviour, are considered to be an
important area for consideration. In
addition, the apparent signi ficance of both
affective and sometimes irrational resp onses
to certain channels combined with th e
extent of ethical and social responsibility
concerns suggests that consumers’ decision
to adopt or not adopt a distribution chann el
is not just a utilitarian calculation
consisting of factors such as availability,
accessibility and perceived risk. The
evidence of the current study would support
the growing body of research which has
argued for much greater consideration being
given to affective responses rather than just
cognitive ones.
Clearly, the present findings have
limitations. Although based on a large
number of fo cus group participants (72), the
focus of attention was on one sector only,
namely, financial services. While financial
services were c onsidered particularly
appropriate for a preliminary study, there is
clearly a need for further research in other
contexts to determine the extent to which the
arguments develop ed in this paper are at all
generalisable. Equally, given the exploratory
nature of the current study, there is also a
case for further research in financial services
to determine the validity of the proposed
model in the context in which it was
developed.
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The authors woul d like to
thank the members of the
Finances Services Research
Forum at the University of
Nottingham for their
financial sponsorship of the
research.
[ 173 ]
Nancy Jo Black, Andy Lockett,
Christine Ennew,
Heidi Winklhofer and
Sally McKechnie
Modelling consumer choic e of
distribution channels: an
illustration from financial
services
International Journal of Bank
Marketing
20/4 [2002] 161±173
